What's new
　　L'Occitane released sales performance for 4QFY22 (ended March 31, 2022): Revenue increased 20.3% YoY to EUR435mn (up 16% CER YoY, CER=constant exchange rate). FY22 revenue reached EUR1.81bn, up 17.7% YoY and 14.6% CER YoY, slightly beating our estimate. In 4QFY22: 1) LeP rose 7.7% CER YoY, dragged by sporadic lockdown in China; 2) ELEMIS maintained encouraging growth at 41.6% CER YoY, driven by returns of wholesale, spa businesses, and growth of online sales in the US and UK; and 3) Limelife sales remained lackluster, declining 37% CER YoY due to attrition of beauty guides. By region: 1) the largest market in China was temporarily off trajectory (+11% CER YoY) due to the massive lockdown for containing the Omicron variant since March; 2) US was rejuvenated (+41% CER YoY) with the consolidation of Sol de Janeiro since January; and 3) UK sales grew 36% CER YoY with continuous recovery of retail sales after the lifting of COVID-19 lockdown restrictions.
　　Comments
　　Per management during the call: 1) Chinese performance will depend on local pandemic containment measures, as domestic logistics and warehouses (especially in Shanghai and nearby cities) are impacted by current lockdown policies, but management eyes a rebound in sales once the lockdown ends. 2) Travel retail performance varied among regions-Hainan duty-free business was hampered due to logistic issues, but management is optimistic it will show resilience once it returns to normalcy. However, global travel retail business showed a clear trajectory of recovery - ELEMIS’ global cruise lines business recovered sequentially (4QFY22 net sales of EUR25mn represented 18% of ELEMIS’ 2018 net sales). 3) ELEMIS in China: The second flagship store opened in Nanjing in March and management guided to launch the Tmall flagship store in May to enhance traction, but the Sephora promotional campaign has been delayed due to Omicron. 4) Management guided FY23 sales growth in the mid-teens CER YoY with more guidance updates during the FY22 earnings call.
　　Financials and valuation
　　We maintain our net profit forecasts for FY22, revenue and net profit forecasts for FY23, and introduce FY24 revenue and net profit forecasts EUR2.5bn and EUR307mn (6% and 8% higher than consensus) on more visibility of L'Occitane realizing mid-term guidance. We maintain OUTPERFORM and TP of HK$36.00 (23x FY23e P/E, offering 46% upside). The stock is trading at HK$24.7, implying 15.5x FY23e P/E.
　　Risks
　　Slower-than-expected ELEMIS ramp up; COVID-19 worsening; forex fluctuations.